14. Remedies against third parties

Question 1

Types of Claims against third parties (appropriating trust property)

Answer 1

1. Intermeddling (personal)
2. Knowing receipt (personal)
3. Proprietary actions against 3rd parties
4. Dishonest assistance (personal against assistors)

Question 2

Intermeddling

Answer 2

If a third party is not expressly appointed as trustee but takes it upon themselves to act like one are PERSONALLY LIABLE for lossess caused by their actions (as if they were an expressly appointed trustee)

Question 3

Knowing Receipt: Requirements for this Claim

Answer 3

Personal Claim (+ interest)
a. third party receives property in breach of trust or fiduciary duty
b. third party receives that property for their own benefit
c. while in receipt of the property, the third party has such knowledge that makes it unconscionable for them to retain or deal with the property as if it were their own

Question 4

When will a claim for knowing receipt NOT be appropriate for a third party who has received property in breach of trust

Answer 4

a. if they do not know it was transferred to them in breach of trust
b. they do not gain this knowledge before they spend it
c. or they only become aware of this AFTER they have spent it

Question 5

Third party claims: when is it ‘unconscionable’ for a third party to retain and deal with trust property gotten in a breach of trust

Answer 5

1. they know it belongs to a trust
2. the third party wilfully ‘shuts their eyes’ to the obvious
3. the third party deliberately chooses to not ask any questions about the origins of the property when they are suspicious

Question 6

When can beneficiaries bring an equitable proprietary claim against a third party?

Answer 6

1. If the party is a wrongdoing recipient
2. If the party is an innocent volunteer (not purchaser)

Question 7

What type of ‘receiver’ of trust property (obtained through breach of trust) are NOT susceptible to a claim from the beneficiaries

Answer 7

If the third party is a bona fide purchaser for value without notice (equity’s darling)

Question 8

Which tracing rules apply for a proprietary claim against a wrongdoing third party

Answer 8

Same as others
- clean substitution
- proportionate share in mixed asset / equitable lien
- Re Hallet / Re Oatway Rules

Question 9

Tracing rules for a proprietary claim against an innocent third party volunteer IF
1. property is in the same form
2. property was exchanged for a new asset
3. property mixed with funds to purchase a mixed asset
4. Mixed assets and various withdrawals

Answer 9

1. Take original item
2. Clean substitution
3. Proprietary claim (proportionate share ONLY)
4. Clayton’s Case and Barlow Clowes v Vaughan

Question 10

If an innocent volunteer receives trust money and uses it to improve buildings they own - can beneficiaries trace their interest into that improvement?

Answer 10

NO: two scenarios

1. Improvement does not increase value of third party’s land (so trust property has just been dissipated) or
2. Has increased value of land but it would be inequitable (Re Diplock Defence)

Question 11

What is the Re Diplock Defence

Answer 11

If a beneficiary could enforce a lien over a third party’s land it would enable them to sell it - making the third party homeless (but with the sale proceeds)
- This inequitable result defeats the proprietary claim

Question 12

When does Re Diplock defence not apply:

Answer 12

a. Against wrongdoing recipients
b. in relation to mixed assets (even for innocent third parties)

Question 13

If a wrongdoing recipient of trust property uses trust funds to improve their property - can beneficiaries recover the trust assets / how?

Answer 13

1. If the value of the property increases because of this - the beneficiaries can asset a proprietary claim against their land up to the increase in value caused by the improvements

Question 14

If an innocent volunteer third party receives trust assets in breach of trust and combines them with their own to put a deposit on a house - are beneficiaries able to pursue a proprietary claim?

Answer 14

Yes, can claim interest in the house proportionate to the contribution

Question 15

Elements of the claim of dishonest assistance

Answer 15

1. Personal remedy (+ interest)

a. there must have been a breach of trust of fiduciary duty (strict)
b. third party must have assisted in that breach (positive act)
c. third party must have acted dishonestly

Question 16

Dishonest assistance: test for dishonesty

Answer 16

whether the ordinary honest person (imbued with the same experience and intelligence as the actual defendant) would have acted differently knowing what the actual defendant knew.

If that honest person would have
acted differently (eg by refusing to carry out the assistance requested of them, or refusing to
act unless specific questions were answered) then the defendant’s conduct is dishonest.

Question 17

If an innocent volunteer receives trust funds and mixes it with their own funds to purchase property for themselves - what remedy could beneficiaries asserting a proprietary claim expect to receive?

Answer 17

They will claim a proportionate share in the mixed asset (whether it has increased or decreased in value)
- not an equitable lien because this would be inequitable